Extended business travelers could be taxed on employment income relating to their Swiss work days, unless exempt by treaty.
Liability to income tax
A person’s liability to Swiss tax is determined by his or her residence status.
Residence is defined as the place where a person stays with the intention of settling permanently and which therefore provides the center of personal and business interests. A person will also be considered resident if he or she remains in Switzerland for a continuous period of more than 90 days (without gainful activity) or 30 days (with gainful activity such as employment) in a calendar year. In practice, however, it is likely that most business travelers to Switzerland will be considered as non-residents or treaty exempt.
For non-residents, the income relating to Swiss duties is, in most cases, subject to a final withholding tax (except where an exemption from withholding tax was filed). The withholding tax is calculated monthly based on the gross monthly salary (including any benefits) with the actual rate determined by the level of income, marital status, number of dependents, canton and – if applicable – church tax. Each of Switzerland’s 26 cantons has a different withholding tax tariff. For business travelers to Switzerland, the withholding tax tariff of the canton where the business traveler registered with the authorities, or the canton where the employer is based, is normally applicable.
Individuals living in countries bordering Switzerland may be taxed differently under special tax treaty provisions applicable to cross-border workers. Each situation would have to be looked at individually.
Tax trigger points
Technically, there is no minimum threshold/number of days that exempts a non-resident employee from Swiss withholding tax. Each case needs to be considered separately based on facts and circumstances.
To the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicable double tax treaty, there will be no tax liability. The treaty exemption will most likely not apply if the Swiss entity is his or her economic/effective employer.
Types of taxable income
For extended business travelers, the types of income that are generally taxed are employment income, as well as any other benefits paid to, or on behalf of, the individual. In some cases, however, the travel costs to Switzerland as well as Swiss accommodation costs can be (partially) exempt from Swiss taxation.
Tax rates vary from canton to canton but are progressive and depend on individual personal circumstances (such as marital status, number of dependents, church affiliation, etc.).
Liability to social security
Extended business travelers who are European Union (EU)/ European Economic Area (EEA) citizens employed by an employer located in an EU/EEA member state can, in most cases, remain subject to their home countries’ social security schemes. This exemption is based on the EU/EEA/Swiss rules with respect to postings and/or simultaneous employment.
Other extended business travelers may, in some cases, stay in their home countries’ social security systems and also obtain an exemption from paying Swiss social security based on the provisions of a social security treaty signed between their home countries and Switzerland. Switzerland has concluded social security treaties with more than 30 countries.
If no continued home country social security coverage and no subsequent exemption from social security contributions are available, an extended business traveler could be subject to Swiss social security as set out below.
Individuals having a gainful activity in Switzerland are required to contribute to the mandatory old age and disability insurance scheme. Employers must also contribute. The contribution is 10.3 percent of total remuneration (uncapped), of which 5.15 percent is charged to the employee and 5.15 percent to the employer. Individuals are also subject to mandatory unemployment insurance. The contributions (employee and employer each pay half of the total) are 2.2 percent of remuneration up to an annual salary of 126,000 Swiss francs (CHF) and iIn addition, there is a solidarity surcharge of 1 percent on income over CHF126,000.
Retirement and disability pensions are compulsory for individuals with annual earnings between CHF24,570 and CHF84,240. The employer’s contributions must be at least equal to those of the employee. Rates vary according to age. Most pension plans give additional pension coverage in excess of these minimum requirements.
Individuals are also subject to mandatory occupational and non-occupational accident insurance premiums. Each individual has to obtain Swiss health insurance, which is not linked to the employer.
Employee compliance obligations
For residents in most cantons, tax returns are due by 31 March following the tax year-end, which is 31 December. An extension can be filed to extend the deadline until 30 June and, in some cantons, even extend until 30 November. Tax returns are required to be filed by tax residents only (mandatory joint filing for married couples).
In case the individual is subject to withholding tax (not a Swiss national or not a C-Permit holder) he or she only has to file a return if the annualized gross income exceeds CHF120,000 (this is the figure for Canton Zurich, but limits can vary between cantons; Geneva for example has a limit of CHF500,000). For persons below the threshold, there is, however, an option to file a voluntary withholding tax adjustment request (to claim special deductions or adjustments of the withholding tax tariff). This request has to be filed by 31 March following the tax year (no extensions are possible).
Non-residents normally do not have to file a return but can file for a voluntary source tax adjustment, if the employment income was subject to withholding tax.
Employer reporting and withholding requirements
Withholding tax on employment income is covered under the withholding tax (Quellensteuer) system. The employer is obliged to report on a monthly or quarterly basis the gross salary, as well as the deducted withholding tax, to the authorities.
Work permit/visa requirements
When the bilateral treaty between Switzerland and the EU came into force in 2002, the laws on work and residency permits changed considerably. There are now two distinct categories of foreigners living and working in Switzerland: EU citizens, who in many ways have similar rights as Swiss citizens; and non-EU citizens, for whom it is still difficult to obtain work and/or residency permits.
Advice should be taken in respect of EU nationals from countries who have recently been admitted to the EU, as they may not have the same work and residency rights as those nationals from original EU countries.
Double taxation treaties
Switzerland has entered into double taxation treaties with more than 90 countries to prevent double taxation and allow cooperation between Switzerland and overseas tax authorities in enforcing their respective tax laws.
Permanent establishment implications
There is potential that a permanent establishment (PE) could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has.
Switzerland levies value-added tax (VAT) at a standard rate of 8 percent. Certain products are exempt from this tax (such as healthcare, social security, insurance, and the export of goods); others are taxed at a reduced rate of 2.5 percent. Finally, any overnight stays at a hotel and other accommodation will be taxed at a rate of 3.8 percent.
With respect to transfer pricing, Switzerland has embraced the widely recognized international arm’s length principle. Transfer pricing issues could arise if, for example, an employee provides a service for the benefit of an entity in one jurisdiction while the respective costs are borne by the entity in a different jurisdiction. The possible consequences and remedies to such situations depend on the nature and complexity of the services performed.
Local data privacy requirements
Switzerland has data privacy laws.
Switzerland has no currency restrictions.
Non-deductible costs for extended business travelers
As the withholding tax is calculated on the gross salary, any other employee social security contributions and pension contributions, etc., will not be allowed as a deduction.